CoCo Bond Revival
11 August 2016 by Mark Holman
This week we have had two notable deals in the Additional Tier 1 (AT1) sector, and both from borrowers that have struggled in recent years.
Yesterday, Royal Bank of Scotland tapped the $ market with, what has been the largest $ AT1 to date, at $2.65bn. The bonds carried a hefty 8.625% coupon and are callable every 5 years. Clearly this is what helped the lead managers build a whopping book of $15bn of orders. Then today, Standard Chartered Bank announced details of their AT1 deal; again in $ and this time with a call in 2022 and an expected 7.5% coupon. The books, as I type, are already over $18bn as many are viewing Standard Chartered Bank as having the worst of their loan losses behind them.
Both are interesting credits in many ways, but both are not the easiest of banks to own, especially when it comes to the most risky sector within the financials universe. However, Royal Bank of Scotland has already rallied by over 1.5 pts, while Standard Chartered Bank is also over a point higher in the “grey” market.
It does feel as though investors are finally waking up to the fact that the AT1 sector has underperformed this year and that there is considerable relative value to be had; albeit in a high beta format. The whole sector has taken a fillip from this significant fresh demand and prices are rallying back to where they were at the start of the year. Given what the rest of the fixed income market has done in the last few months, there could be a long way to go yet.
FOR PROFESSIONAL INVESTORS ONLY. NO OTHER PERSONS SHOULD RELY ON THE INFORMATION CONTAINED HERE.
This material is for information purposes only. Any views expressed are those of the author, and do not necessarily reflect the views of TwentyFour. TwentyFour does not warrant the accuracy or completeness of any information contained herein, and therefore it should not be considered as an indication of trading intent, personal investment advice, or a basis on which to buy, hold or sell any investment vehicle/instrument. As such, TwentyFour accepts no liability for any use, or misuse, of the material in this commentary. This material may not be reproduced, in part or in whole without the express prior written permission of TwentyFour.
Please remember that all investment comes with risk and positive returns are not guaranteed and you may not get back what you invested. Investing in fixed income securities comes with credit risk, default risk, inflation risk and interest rate risk.